Entries for Bad Debt Expense under the Direct Write-Off and Allowance Methods

The following selected transactions were taken from the records of Shipway Company for the first year of its operations ending December 31:

Apr. 13.

Wrote off account of Dean Sheppard, $8,280.

May 15.

Received $4,140 as partial payment on the $11,010 account of Dan Pyle. Wrote off the remaining balance as uncollectible.

July 27.

Received $8,280 from Dean Sheppard, whose account had been written off on April 13. Reinstated the account and recorded the cash receipt.

Dec. 31.

Wrote off the following accounts as uncollectible (record as one journal entry):

Paul Chapman	$5,550
Duane DeRosa	4,140
Teresa Galloway	2,480
Ernie Klatt	3,480
Marty Richey	1,240

Dec. 31

If necessary, record the year-end adjusting entry for uncollectible accounts.

For those amount boxes in which no entry is required, leave the box blank. If an entry is not required, select "No entry" from the dropdown box(es).

a. Journalize the transactions under the direct write-off method.

Apr. 13
May 15
July 27-reinstate
July 27-collection
Dec. 31-write-off
Dec. 31-adjusting

b. Journalize the transactions under the allowance method. Shipway Company uses the percent of credit sales method of estimating uncollectible accounts expense. Based on past history and industry averages, 2% of credit sales are expected to be uncollectible. Shipway Company recorded $2,019,600 of credit sales during the year.

Apr. 13
May 15
July 27-reinstate
July 27-collection
Dec. 31-write-off
Dec. 31-adjusting

c. How much higher (lower) would Shipway Companys net income have been under the direct write-off method than under the allowance method? by $